Little pullback, big pullback, or more? Taking market's pulse with TRIN, McClellan, VIX and sentiment data, and Terry Laundry's T Theory (gold too)

The prevailing question seems to be whether this is a small pullback before the market moves up again later this week (as depicted in ChartsEdge's SPX and NDX weekly cycle forecasts - but remember, we're to use those more for timing than absolute levels, and we seem to be already under the starting point used by those forecasts). Or whether this is the first step down to a deeper pullback, such as to 820 SPX. (And yes, there can still be a valid basis to question whether a move down might turn into something more bearish - but, first things first.) Let's take the pulse of the market to see how strong it's feeling right now. We'll use TRIN and McClellan data to gauge technical strength, as well as Terry Laundry's T Theory update. Then we'll look at VIX and "max pain" data to consider sentiment.

First, the TRIN data reacted with the drop today by moving to a level that might support a reaction higher over the next day or so, though not a guarantee. The TRIN popped and closed at 2.04 today. The 3-dma at 1.33. The other MA's on my TRIN chart remain below 1.2 (the 10-day at 1.03). At least we can say that the TRIN isn't calling the market oversold from a swing trading basis; so, it would be possible for the market to move lower before becoming oversold. The McClellan charts for NYSE and Nasdaq are telling a tale that seems consistent - the McClellan Oscillator has continued to weaken, although it remains above zero. So the Oscillator retains the potential to tick up again. But keep an eye on it, because it can also drop to the zero line. The negative divergence has been a warning or cautionary signal. I added some trend lines that depict the divergence, and also show levels to see if the Oscillator pops up again above the line or continues to drop under the line. Dropping under the zero line for the Oscillator itself, would be a stronger bearish signal.

Terry Laundry has issued his Monday T Theory update at his T Theory website. I won't try to speak for his update, as you'll want not only to see his chart (below) but listen to his audio explanation. Still I think it's fair to say that he's viewing the market as readying for a moderate pullback, with another rise then likely into late May or early June. (Gold investors and gold traders should also listen to his audio comments.) He marks the SPX as encountering resistance at his upper envelope, about 941. Note, that on Stockcharts.com the 200-day moving average is stating as 953 on my chart, but Todd Salamone (in his Monday morning outlook article I gave the link for this morning) identifies it as being more like 942. This widely-watched moving average can of course provide classic chart resistance that often produces at least a moderate pullback.

Turning to the VIX, it moved above the 33.81 level again intraday, and closed above Friday's high. Since Friday spent the day beneath my 33.81 Fibonacci level, I normally would view the movement and close over yesterday's high as bullish for VIX and bearish for equities. But the VIX closed at 32.87 (meaning, it closed beneath my 33.81 level). So even though it spent time above that level today, its close under 33 leaves some ambiguity. I'm looking for the VIX to do one of two things - either touch the lower trendline one more time, or push and close above the upper one (that I marked and pointed out on my VIX chart, below). If it weren't for that ChartsEdge weekly forecast - as well as some Fibonacci work I did and posted at my UBTNB3 blogspot today (suggesting that SPX might want to get to about 943/947) - I'd think that this VIX position would stall out equities. And don't get me wrong, it might. But I do think VIX will have to rise back above 33.81 to really make that happen.

Then there's the max pain calculation, for which I used the "max pain" site (link in "other sites of interest" at the right side of this page) and that's depicted below. The max pain level they're showing for SPY for the May options expiration this coming Friday, is 87. Remember that in a trending market, max pain data become less predictive. The market's trend has slowed some of course, but hasn't confirmed a rollover yet.

So even if we see the market try to probe higher this week, there are reasons to look for a moderate pullback. But nothing yet flashing a red alert that a move down necessarily challenges the March lows. I'll still retain something that bearish as an alternative count that we can review if market volatility starts spiking. I still think there are "tea leaves" in this market that can support the possibility of a deeper move down - and I've scattered some of those tea leaves in my various posts here and at UBTNB3 blogspot for those who may be interested and are following that train of thought. But I'm wary of espousing it as a primary alternative, partly because the moderate-pullback scenario as articulated by Tony Caldaro does seem more likely on balance. And partly because I don't want to help urge on readers who might already be too bearish, into taking overly bearish positions and then getting hurt.

For now, I'm thinking we should remain on guard against the market trying to push up over the next few days (even if that only happens intraday). It will be interesting to see if the market does roll over to revisit that 881/884 area by (or on) Friday. Broken resistance can become support; 881/884 had been an important level. If the ChartsEdge forecast for the week actually plays out and we see a big rise over the next few days (or even a moderate rise), then it would take a hard fall on Friday to get close to it. (There are options trading methods that can work well for Thursday afternoon/Friday morning, if that happens and if one is willing to play that game.)

For the bigger picture - if the S&P 500 doesn't close the month of May above 880/884, and if the Dow Jones Industrial Average doesn't close this month above 8400/8450, this wouldn't be very positive. And no matter what levels these markets reach by the end of May, we should be on the lookout for any subsequent movement in June or July that moves under the lows of this month (May). Just something to keep in mind during the weeks ahead. Conversely, if the market can sustain only a moderate pullback and then rise above the 200-day moving average (and January highs) in the SPX and Dow Industrials, then we can start looking in later weeks or months for higher price levels like 1060, 1080, maybe 1120 or so.